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Tokyo - Gold rose to hover around $1 010 on Wednesday as the dollar hit a one-year low against a basket of major currencies, boosting the metal's appeal as an alternative investment.
Growing optimism about the economy has prompted investors to sell the dollar and snap up riskier assets such as stocks and commodities, helping to lift gold above $1 000 an ounce last week.
Kazuhiko Saito, chief analyst at Tokyo's Fujitomi, said inflation risks were also helping to support gold, which investors see as a hedge against the erosion of paper assets.
"We have those comments from the Fed about the economy on the mend, but there are still worries about inflation," Saito said.
Federal Reserve Chairman Ben Bernanke said on Tuesday the recession was likely over, while data supported hopes that a recovery from the worst downturn in decades was advancing.
Spot gold was trading at $1 010.50 an ounce, up 0.4% from the US notional close of $1 005.90. It rose as high as $1 011.55 on Friday, its highest since March 2008.
US gold futures for December delivery were at $1 012.3 an ounce, up 0.6%. They rose to $1 013.70 on Friday, the highest since February.
The dollar index, which measures the dollar's value against a basket of six major currencies, fell to a one-year low of 76.406 before paring losses to 76.481, down 0.1% on the day.
Many analysts see gold prices rising further.
Economist Martin Murenbeeld told the Denver Gold Forum on Tuesday that the price of gold could rise above $1 110 in 2010 as central banks diversify reserves into gold due to the faltering dollar.
The high prices have also prompted more selling of gold scrap.
"Because of the high price we are seeing some gold scrap back in the market ... but not as strong as in the first quarter," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
Buying based on technical charts has also contributed to gold's bull run, but in contrast high prices have caused individual investors to think twice about buying physical gold.
Money inflows into gold-backed securities remained slow.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1 078.851 tonnes as of September 15, unchanged from the previous business day.
- Reuters